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On Our Radar

Natural Gas Investing: How to Profit From the Coming West Coast Natural Gas Boom

Williams Companies CFO Don Chappel spoke at a recent investor conference about the future of the company and its MLPs Williams Partners L.P. and Access Midstream Partners LP , which it's merging together early next year. One area that he pointed out as being a potentially important growth area for the combined company was the West Coast, and more specifically the Pacific Northwest. He noted that there are a number of demand driven projects in development that could yield large investment opportunities for Williams in the years ahead.

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A network of opportunitiesWilliams owns a vast network of natural gas pipelines that serve both coasts as well as many points in between as we see in the map below.

Source: Williams Companies Investor Presentation

As that map notes, a bulk of the company's assets are in the Gulf Coast region. That's no surprise as that region plays an important role in both supplying America with cheap natural gas as well as being the key demand center for that gas. The Pacific Northwest, on the other hand, is a bit different as it doesn't contain natural gas supplies, but instead it serves as a key demand pull point. That pull is expected to grow stronger in the years ahead as industrial users in the region expand capacity and consume more gas while exports of LNG and natural-gas-based methanol begin to flow toward Asia. These demand driven opportunities present a unique opportunity for Williams to expand its footprint in the region.

The pull of demandAs the map below denotes, there are several new demand driven market opportunities on the horizon, which could lead to two potential new projects for Williams.

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Source: Williams Companies Investor Presentation

In discussing these projects the company's CFO gave some insight as to what investors need to watch in the Pacific Northwest. He said, in regarding the company's Northwest Pipeline, that the company is:

[...] now seeing a leg of growth that is just ahead of us. LNG export, the Jordan Cove terminal is moving closer and closer to sanctioning. They're expecting [...] successful sanction in 2015 and Williams Partners, [and Access Midstream after it is merged with Williams] is expected to enjoy, or would enjoy, a very significant investment opportunity here [due to] half of the Pacific connected pipeline that would provide a natural gas service to the Jordan Cove LNG export project. That's about a $1 billion investment for our partnership with a 50% interest in that pipeline so the pipeline is kind of the $1.5 to $2 billion range and we have half of that and we have the developer and the operator.

As Chappel noted the company sees the future sanctioning of the Jordan Cove LNG export terminal as an important demand driver in the region. The natural gas that would be offloaded to Jordan Cove, and then exported to Asia, needs to come from outside the region and Williams has the pipeline to bring it in, which would be expanded to specifically service this export terminal. It's a billion dollar investment opportunity for the company that could be in service as early as 2018. What's important to note here is that this project should be easier to gain approval because of its history. Chappel noted this by saying:

Interestingly that route was approved many years ago when that LNG site was seeking to be an import terminal so it's a very familiar route for us and one that we've had in front of the FERC before so we're just turning it around and making some modifications to it today.

That statement reminds us of the incredible reversal of fortunes we've seen in the U.S. as the country went from seeking to import gas, to now turning those facilities around for exports. Further, with so much natural gas supply American companies are looking to export it not only as LNG, but methanol, which is a chemical feedstock that has a variety of uses, including as a transportation fuel. Chappel noted that the potential for methanol exports also presented an opportunity for Williams by saying:

Some of the other developments in the northwest are methanol export. You can see here [on the Pacific Northwest map] that we've got three credible projects working on methanol export really turning a natural gas into methanol and then exporting it to the -- to Asia and, again, in the aggregate these three projects are about a BCF a day of additional demand.

The demand for natural gas to service these projects, and other demand driven projects, is opening up the opportunity for Williams to bring more gas into the region from Canada. This has the potential to lead to the sanctioning of the Washington expansion project, which is the other large opportunity for Williams.

Investor takeawayWhile the Pacific Northwest isn't the current hotbed of opportunity for natural gas that we find in the U.S. Gulf Coast, this could change. Its strategic location, which is closer to Asia, is expected to yield new demand driven projects in the years ahead. As these new projects get the green light Williams is well positioned to expand its pipeline capacity to bring additional gas supplies to the region to meet this new demand, which will create additional value for its investors.